Mark and Gail form Maple Corporation with the following consideration: Considera

Question

Mark and Gail form Maple Corporation with the following consideration:

Consideration Transferred

basis to fair market Number of

transferor value shares issued

From Mark-

cash $40,000 $40,000

installment obligation 40,000 360,000 40

From Gail-

Cash 140,000 140,000

Equipment 120,000 180,000

Patent $4,000 280,000 60

The installment obligation has a face amount of $360,000 and was acquired last year from the sale of land held for investment purposes (adjusted basis of $140,000). Regarding these transaction, provide the following information:

Mark's recognized gain or loss is ________.

Mark's basis in the Maple Corporation stock is _____.

Maple Corporation's basis in the installment obligation is ______.

Gail's recognized gain or loss is _________.

Gail's basis in the Maple Corporation stock is ______.

Maple Corporation's basis in the equipment is _____. Its basis in the patent is _____.

Would your answers to the preceding questions change if Mark received common stock and Gail received preferred stock?

1. yes

2. No

Would your answers change if Gail was a partnership instead of an individual?

1. yes

2. No

Explanation / Answer

1) Mark's recognized loss is = 360000 - 40000 = $320000 2)Mark's basis in the Maple Corporation stock is $40000 3)Maple Corporation's basis in the installment obligation is $360000 4)Gail's recognized gain is $140000 5)Gail's basis in the Maple Corporation stock is $140000 6)Maple Corporation's basis in the equipment is $140000 + $40000 = $180000 and basis in patent = $4000 1) yes 2)yes

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